Square Just Increased Their Transaction Rates And Cafes Are Screwed

There’s one piece of equipment that is ubiquitous in specialty cafes these days. It’s not the La Marzocco Linea or the Malhkönig EK43 (but those are great guesses. You’ve been reading the Build-Outs of Summer, haven’t you?), it’s not a piece of coffee equipment at all. It’s the Square Up point-of-sale system (better known simply as Square). What was once a symbol of a scrappy upstart coffee company who just wanted to introduce to the terms “pour-over” or “single origin,” the little white pedestaled touchscreens became a hit with the specialty coffee crowd for their low rates, ease of use, and aesthetically pleasing design. They even partnered with the SCA to give a snapshot of American coffee consumption habits using data from their vast network of Square-using cafes (“vast”, in this case, meaning “however many coffee shops it takes to sell over 67 million lattes in a single year”).

But this week, Square sent out emails to their customers announcing an unexpected and sudden price hike. And the increase is significant.

News of the increase began to make its way around Twitter and coffee Facebook groups yesterday. Per the posts, Square is moving from a 2.75% flat fee for every credit card sale to a 2.6% + .10 fee. While the increase itself doesn’t sound significant, it has an adversely affect on small businesses—and in particular coffee shops—whose average transaction size are generally smaller but whose total transaction count tends to much be much larger.

As an example, on a $5 transaction for your favorite cappuccino, Square would take $.14 in their old pricing model. Under the new model, they will take $.23, which is just under a 67% increase. In fact, in order for a business to not see a rate increase, their credit card sales would have to average $66.67 per swipe. I don’t care how much avocado toast you sell—those aren’t coffee shop numbers.

 

Margins are already razor thin for most cafe owners, and the new pricing structure levies heavy fees against small transaction businesses like coffee shops. Not for nothing, but specialty coffee was a big time early adoptor for Square, and helped make their system an ubiquitous part of small business life. Now these very same cafes are feeling the pinch the hardest. Narrative Coffee‘s Maxwell Mooney calculates his total card sales increase will be around 50%. Jill Killen of Cloud City Coffee shared on the Baristas Guild of Washington State Facebook group a screenshot of an email from Square stating that her fees are estimated to increase by $674.83 per month, an increase of over $8,000 a year. Cultivar Coffee‘s Jonathan Meadows states that an $8,000 increase would only account for transactions year-to-date, which don’t include October through December, the busy season for most cafes.

In response, Mooney has started a Change.org petition for small business owners to voice their displeasure and organize action. The petition is “not intended to simply be a complaint forum,” but “to work together with other organizations to create a solution that will give small businesses a fighting chance at competing with larger businesses by collectively working together to negotiate a deal that represents all of us together.” Within the first three hours, the petition garnered over 250 supporters and as of press time it has already eclipsed 550 signatures.

Mooney tells Sprudge:

Square’s business was built on [specialty coffee shops]. The work that we do. We have been loyal and faithful fans of their product because it works and meets our needs as coffee bars. They were the first ones to really listen to what we needed. But now that they’ve extracted every bit of social capital they needed out of us, they are directly targeting our businesses that have high transactions and low ticket values by introducing this horrendous new pricing structure… We’ve already paid them $14k this year alone in fees as a single shop… I’m forecasting that under the current pricing model, we’ll be at $19,400 in fees by the end of the year.

This hurts. Like real friggin bad.

The suddenness of the fee increase, which is already being rolled out to new Square customers, has left many coffee shop owners scrambling on how to proceed. Adding an additional $8,000 in yearly POS expenses simply isn’t an option for many cafes, especially in light of ongoing concerns around a barista living wage. For some, seeing this kind of price hike on small businesses enacted by a multi-billion dollar company makes the pill even tougher to swallow. Some are beginning to explore different point-of-sale options, while others are considering dropping credit card transactions altogether.

Baristas and cafes aren’t the only ones who are upset. Barron’s and Motley Fool are both sounding alarms about what the new terms might mean for Square stock holders. In the meantime, next time you visit your favorite cafe for that $5 cappuccino, bring cash.

This story is developing…

Zac Cadwalader is the managing editor at Sprudge Media Network and a staff writer based in Dallas. Read more Zac Cadwalader on Sprudge.